Real estate investors have been criticized for a gamble that backfired – but plenty of first-time buyers have also been burned, says broker
A problem that’s gripped Canada’s two major condo markets of Vancouver and Toronto isn’t showing much sign of slowing: a surge in presale condos coming in well below purchase price, leaving many borrowers facing lost deposits, developer lawsuits, and few realistic options.
In Vancouver, the crisis is pushing mortgage brokers well beyond their traditional role, according to Lev Keselman (pictured top), managing partner at Peak Mortgage Co.
“I’ve been brokering for 20 years and I haven’t faced this before,” he told Canadian Mortgage Professional. “It’s heartbreaking because [for clients], it’s savings spent towards leaving the deposit. They’re unable to complete. On top of walking off the deposit, they get sued by the developer.”
Scores of buyers signed presale agreements in 2021 and 2022, when the condo market was red-hot, values continued to soar and demand for rental properties remained high.
But the market’s dramatic cooldown since then has seen values plunge – meaning those buyers are suddenly faced with appraisals coming in as much as 20-25% below the original purchase price, according to Keselman, when their units complete.
That’s a gap so large that in most cases, even a conversation with the appraiser becomes academic. “At that point in time, it just becomes like a hopeless discussion,” he said.
Appraisers working on condominiums have also highlighted the challenges they’re facing and encouraged brokers and their clients to lock in an appraisal as early as they can in the mortgage process.
But options narrow quickly for buyers who signed contracts at peak prices and are now facing a completion they can’t fund. Keselman said his team tries to guide clients toward bank lenders that hold blanket appraisals, which can occasionally produce a more favourable result.
If that fails, the conversation shifts to legal counsel. “It’s ultimately referring them out to a lawyer to try to defend them against the developer,” he said. “or in some instances, maybe try to negotiate a partial refund of the deposit if possible.”
First-time buyers bearing the brunt
The fact that the presale problem is concentrated in condominiums also means many of those now caught in the completion crisis are first-time buyers who purchased without realizing what a years-long market slowdown could mean for their deal.
That’s a long way from the perception some have of the condo crisis as a fiasco only facing investors who gambled recklessly on rental units and paid the price.
Brokers aren’t just arranging financing for those first-time buyers, Keselman said – they’re also managing expectations, providing emotional support, connecting clients with lawyers and other professionals, and in some cases helping people understand that there may be no path to completion.
“A lot of times it’s just having empathy towards those clients,” Keselman said, “and trying to help them deal with the situation.”
Is the bottom in sight?
Few believe that the condo market is about to bounce back anytime soon, with no sign of a swift rebound for the sector. But Keselman believes the structural conditions for an eventual recovery are beginning to fall into place because developers are no longer committing to new condo projects in Toronto and Vancouver, which means there’s little chance of even more excess supply hitting the market.
“I think right now, there’s too much inventory, but it’s going to get absorbed,” he said. “There are ultimately a lot of the big developers on the West Coast just not starting new projects. So you’re going to have much less inventory as time passes by.”
That issue won’t resolve itself in a matter of days or weeks – but could work itself out within six to 12 months, Keselman said, as supply and demand gradually rebalance.
But until that happens, the human cost is continuing to mount. The wait for a market rebalance offers little comfort and borrowers and clients are left to navigate a situation that has little real precedent in recent Canadian mortgage history.
“I was at a bank previously during the global financial crisis and I think we dealt with a lot of those people not being able to complete at that point in time,” he said. “But it’s the first time I’ve seen it as a broker.”
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